Time for Bonds: A Growth Company Learns the Ropes of Issuing Debt

# Capital Markets

# Banking

A debut bond offering reveals the benefits of preparation in working with rating agencies, banks and the C-Suite.

Eight years after going public, one NeuGroup member company planned to refinance equity-linked capital with straight debt—in the middle of the pandemic. It successfully completed the issuance, and at a recent NeuGroup meeting the company’s treasurer described a process that was challenging at times but ultimately proved rewarding.

Along the way, the treasury team—which had never issued straight bonds—learned valuable lessons, including the need for consistent, clear communication with partners, vendors and the C-Suite.

The credit ratings tango. A few months before the bond issuance, the company worked with Moody’s and S&P, and found the former easier to work with than the latter.

The member said that in a three-hour Zoom meeting, Moody’s was “well-prepared with a lot of very thoughtful questions. You could tell they were trying to find information that they could use for their research.”

S&P’s level of preparation left a different impression. “There was a lot of editing we had to do. We had to provide extra guidance prior to the final opinion being published.”

In response to a question, the member said he saw no need to secure a rating from Fitch at this time, given the time necessary to engage with S&P and Moody’s.

Making your case. The actual debt issuance taught the member the value of preparation and anticipating questions before communicating with both internal and external stakeholders.

The member’s preparation before discussing the proposed offering with the company’s new CFO—specifically, the reasons behind the timing of the deal—paid off and moved the ball forward.

The treasurer said that in addition to the economic benefits, straight debt aligned with the goal of transitioning from an emerging growth company to a stable, more established corporate.

Treasury kept the CFO in the loop throughout the process, communicating through a project manager.

The treasury team also benefitted by going through the process of helping prepare the CEO and CFO ahead of conversations with potential investors, which required working closely with the company’s investor relations team.

“From ratings, to the marketing people, the bond issuance, treasury prepared talking points for each of the slides, so we had the IR team really helping us in this process,” the treasurer said.

Managing bank relationships. The treasury team selected a lead bank it knew well, a decision that paid off in terms of a smooth and successful offering, the treasurer said.

“The process itself went fairly smoothly,” he said. “The bank did a lot of the heavy lifting including preparing for investor calls and doing a lot of due diligence in terms of all the documentation that we needed to complete.”

But the treasury team learned the challenges of managing the expectations of more than 10 banks, some of which were not happy with not landing a lead role.

That brought home the need for better communication with non-lead banks early in the process, preparing them for their role on the present deal and conveying what they might expect in future transactions.